Monday, July 17, 2006

Grands projets not right for IT

The Economist thinks that large-scale public IT projects like (positioning system) Galileo, (search engine) Quaero and a European Institute of Technology are not the way for the EU to fix its underinvestment in IT:

It may seem churlish to criticise projects that seek to catch up with the world's market leader when Europe is struggling to improve its use of IT. But in 20 years' time, Europe will be competing with India and China at least as much as with America. And the continent's real problems lie in such things as a lack of entrepreneurial spirit, weak links between universities, business and government, an underdeveloped venture-capital industry, a cumbersome patent process and red tape that ties small companies in knots. Systemic changes are needed, not a clutch of high-tech projects that will barely touch these bigger worries—and may end up wasting a lot of public money.

UPDATE: a friend writes:

Some folks seem confused about how some parts of the US became successful. Largely these were accidents. Europe would do better for itself if it focused on innovation rather than on replication, let market forces pick the winners, and didn't waste limited R&D funds on duplicative projects like Galileo.

The US Government did not set out "to invent the Internet". Instead, it made consistent investments through NSF and (D)ARPA into a wide range of emerging technologies — with a willingness to fund high risk, high payoff projects (mostly university R&D projects) at modest levels. A US issue at present is that NSF funding for computing/communications is low by historic standards (inflation adjusted) and the current DARPA practice appears to be to avoid any high-risk/high-payoff projects.

Airbus did not really take on Boeing. Airbus took on, and defeated, McDonnell-Douglas's commercial aircraft division, who made the DC-9 and DC-10, for example. There is some economic basis for believing that there is only room globally for about 2 large commercial aircraft manufacturers — at least these days.

Silicon Valley was largely an accident. It certainly was not planned centrally by either the US or California governments. The critical ingredients for any of the high-tech areas of the US have been the same (favourable tax climate for high-risk/high-reward investments; first tier universities with solid programmes across the spectrum in business, liberal arts, science, and engineering; investment bankers with enough capital to make some mistakes; labour laws that do not hinder hiring or firing). These have been the key properties not only of Silicon Valley, but also of Research Triangle Park (in NC), the Route-128 corridor (in Mass Bay area), and Austin (in TX).

One should be more impressed (and worried for the USA) if the EU would setup a (civilian) equivalent to ARPA, gave it consistent funding, a charter to fund the best proposals regardless of nationality, and used ARPA's model of having solid researchers rotate through as the program managers. Similarly, if the EU wants to be more competitive, countries will change their tax treatment of startup companies, stock options, and IPOs. Finally, the continent would need to make significant changes to labour laws — removing barriers to terminating staff, reducing payroll taxes, and putting unions within some consistent/predictable regulatory framework.

It seems unlikely that the EU will choose to travel the path that leads towards success in technology innovation. Selected countries, possibly the UK, might well do well in future — entirely on the basis of national decisions about policy and law. Cambridge seems just short of the critical mass needed to take off as a high technology area. It has some interesting startups, but does not seem to have critical mass just yet. I don't see anything similar to Cambridge in France or Germany.